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Outlook for Global Economy, Equity Markets Brighter

Ebrahim Rahbari remains positive on the global economy and equity markets for now. The head of global macro­economics at Citi expects growth to accelerate in the near term as people finally shake off the gloom associated with the last financial crisis.

While the global economy may be near “peak momentum” and asset valuations are “stretched”, growth is strong and broad-based across most developed markets and many emerging markets. Moreover, Citi expects a pick-up in capital investment globally and faster US growth stemming from Donald Trump’s plans for tax cuts, AAP reported.

“The most remarkable part of this upturn, the current improvement in global growth, is that we are finally seeing investment come through,” Rahbari said at the Citi Investment Conference in Sydney Tuesday. “We could have a bit of upside in economic growth rates both globally and in the US.”

He expects the “end of pessimism” to inspire a return of capex spending in the industrial sector. “It’s more driven by the fact that we’ve stopped getting ever more worried about the outlook and we’ve kind of converged to the ‘new normal’ in a way that actually underpins a little bit of additional investment spending,” Rahbari said.

“My guess is, near term, we have a little bit of upside risk in economic growth but we are probably not far from the peak of the momentum.”

Citi predicts global growth of 3% to 3.5% next year—which is “unremarkable” compared with just before the crisis but “respectable” compared with long-term averages.

“What strikes us as most unusual in this current pattern is how broad-based the recovery is and how few risks we are seeing that some significant part of the world is facing a slowdown in the near future,” Rahbari said. “It’s a very broad-based and perhaps there are some upside risks.”

In recent years the eurozone was viewed as a key risk to the global outlook. “We were often worried that things could fall apart (in the EU)—that either the economy would struggle to recover or that there would be a significant crisis in financial markets.

“But the eurozone is now among regions that are doing well and it has in fact outgrown the US economy for the last couple of quarters and there’s every expectation that this will continue for some time.”